Debtor Is Denied All Relief after Making False Statements in Bankruptcy Petition

The United States First Circuit Court of Appeals recently published an opinion affirming a lower court’s ruling to dismiss a Chapter 11 bankruptcy petition filed by a man and his wife after confirming that the debtor knowingly made false statements under oath when petitioning for the bankruptcy. Since the bankruptcy code strictly requires debtors to be forthcoming with their assertions to the court, the debtor will be denied any bankruptcy relief because of his false statements, including for debts that he reasonably could have expected to be discharged had he been honest in his prior statements. As a result of this final appellate ruling, the debtor will not be able to seek the discharge of the debts that the bankruptcy initially attempted to address.

CrossiesDebtor Seeks Bankruptcy Protection With $6 Million in Assets and $10 Million in Debts

The debtor at issue in the case of Hannon v. ABCD Holdings, Inc. was the owner of ABCD Holdings, who sought bankruptcy protection for his wife and him in 2012, alleging that he owed over $10 million in debts and had less than $7 million in assets on hand. According to the facts discussed in the appellate opinion, during the course of the proceedings, a minority shareholder in ABCD Holdings exercised an option to purchase a controlling stake in the company, since he suspected that Hannon was mismanaging the company’s assets. After controlling ownership of ABCD Holdings switched to the new owner, Hannon continued to run the day-to-day operations of the company for several months, until the new owner obtained an order forbidding him from doing so.

The Debtor Used Company Funds for Personal Use and Failed to Disclose His Actions

The bankruptcy court ruling, which was later affirmed on appeal, found that after ownership of ABCD Holdings changed but while Hannon continued to manage the company’s operations, he took approximately $100,000 of the company’s assets and converted them for personal use. According to the appellate opinion, Hannon and his family members continued to use bank accounts, credit cards, and other funds that belonged to the company for purely personal reasons, although he did not report these withdrawals on a sworn statement made to the bankruptcy court when he was acting without an attorney. The new owner of ABCD Holdings subsequently objected to the discharge of Hannon’s debts to the company, arguing that his failure to disclose the funds he took from the company in his bankruptcy should prevent him from obtaining a discharge. The court found that Hannon clearly used the business funds for personal use and should have known that his sworn statements to the contrary were patently untrue. Following the U.S. Bankruptcy Code, the court dismissed Hannon’s bankruptcy petition and entered judgment in favor of the company, based on this false statement alone.

A Failure to Remain Honest in a Bankruptcy Proceeding Can Forfeit Even Legitimate Rights

Since Hannon was found to have knowingly made false statements to the bankruptcy court while under oath, the substance and specifics of his bankruptcy claim became irrelevant. Even debts that he could and should have had discharged are now non-dischargeable because of the statements that the debtor made when he was not represented by a bankruptcy attorney. People considering bankruptcy should always consult with a qualified and competent bankruptcy attorney to avoid forfeiting their right to bankruptcy protection. Even debtors who fear they may have made illegal or unethical financial maneuvers in the past may still benefit from bankruptcy protection if they are forthcoming to the court about their past behaviors and follow the proper procedures to seek a just resolution for all the parties affected by their claim. Since Hannon attempted to mislead the bankruptcy court in his initial filings, he was punished severely and will be unable to take advantage of protections that he would be entitled to receive under different circumstances.

Should You Consult a Bankruptcy Attorney?

If you or a loved one is concerned about a large amount of debt, bankruptcy may give you a path to get your finances under control. The Louisville and Southern Indiana bankruptcy attorneys at the Schwartz Bankruptcy Law Center have the experience to help guide you through your bankruptcy in an affordable manner. Don’t go it alone; mistakes that are made early in a bankruptcy may become permanent and could disqualify you from future relief. Contact us today. Our bankruptcy attorneys represent clients nationwide in several types of bankruptcy proceedings. Call 866-366-3328 or contact us through our website to schedule a risk-free consultation.

More Blog Posts:

Federal Appeals Court Allows Creditors to Seek Repayment of Expired Debt Claims Through Bankruptcy Cases, Kentucky Bankruptcy Lawyers Blog, published September 6, 2016.

Bankruptcy Appellate Panel Affirms Order Discharging a Former Inmate’s Incarceration-Related Costs, Kentucky Bankruptcy Lawyers Blog, published October 5, 2016.

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